A Palestinian tunnel worker gestures as he repairs a smuggling tunnel flooded by Egyptian security forces, beneath the Gaza-Egypt border in the southern Gaza Strip in Sept. 2013.

Ibraheem Abu Mustafa / Reuters

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Jerusalem; and Gaza City, Gaza

Egypt’s crackdown on tunnels used by smugglers to bring everything from cement to take-out dinners into Gaza have wrecked havoc on its economy.

Unemployment rose 6 percent to 38.5 percent in the last quarter of 2013. That is its highest level in three years, and more than double that of the West Bank, according to a report Wednesday from the Palestinian Central Bureau of Statistics.

At time same time, costs are rising steeply. Since Egypt's crackdown in August, the cost of a box of eggs has risen from around 10 shekels ($2.85) to 16 shekels ($4.54), while cement prices have nearly tripled to 1,000 shekels ($285) per ton. The tunnels had supplied as much as 50 percent of Gaza’s daily necessities, including subsidized Egyptian fuel and raw materials, since Israel imposed an economic blockade on Gaza following Hamas’s takeover in 2007.

While Egypt and Israel oppose the tunnels on the grounds that they abet weapons smuggling and terrorist attacks, Hamas sees the crackdown as part of a broader attempt by Egypt’s new military leaders to undermine its rule in Gaza. Dependent on taxes on tunnels for around half its revenues, Hamas is now virtually insolvent.

“From Hamas’s perspective, the destruction and closure of tunnels is aimed at isolating Hamas and squeezing Hamas into further economic and political isolation,” says Mukhaimer Abu Saada, professor of political science at Gaza's Al-Azhar University.

Israel, which considers Hamas a terrorist organization and has withstood more than a decade of rocket fire on its citizens, has bristled at criticism that it is waging an unjustified economic war on Gaza.

European Parliament President Martin Schulz was heckled in the Knesset Wednesday when he suggested that Israel’s Gaza blockade was counterproductive to security, since “the results of the blockade are exploited by extremists.” Minister of the Economy Naftali Bennett walked out and later demanded an apology from Mr. Schulz.

Smuggling slowdown

The Palestinian statistics bureau reported a combined loss of 38,400 Gazan jobs in the second half of 2013. Most appear linked to the tunnel closures. Gaza’s trade union announced in December that the closures had left 40,000 workers newly unemployed, 7,000 of them smugglers. The Israeli NGO Gisha, which advocates for Palestinian freedom of movement, reports that the construction sector alone lost 11,000 jobs.

At first glance, the Gaza-Egypt border still appears to be humming along, with dozens of Palestinians tunnelers working tirelessly on a recent day.

The workers are not busy transporting goods through the tunnels, however. They are transferring mud that poured in after Egyptian bombings triggered landslides. Just 100 feet away, Egyptian armored vehicles and two fully armed soldiers watch their movements.

"The traffic is very low; around 5 percent of tunnels are working, and they don't work easily like before,” says Abu Ahmed, the owner of two tunnels who is overseeing their restoration. “Some tunnels that lie long into Egypt can still bring a small amount of fuel, cigarettes, and food stuff."

That’s a pittance of what they used to deliver.

According to Sari Bashi of Gisha, the tunnels provided the vast majority of building materials for Gaza’s private sector. From October 2012 to April 2013, a monthly average of 218,000 tons of gravel came through the tunnels, compared with less than 10,000 via Israel’s Kerem Shalom border crossing.

In addition, a monthly average of 64,000 tons of cement and 14,000 tons of steel came through the tunnels, while no cement and steel for the private sector came through Kerem Shalom, according to figures from various UN agencies as well as the Palestine Trade Center (Paltrade).

“It’s a huge amount that was stopped fairly quickly over the summer, where the slack was not picked up by the Israeli crossings,” says Ms. Bashi.

Israel’s policy toward Gaza has fluctuated significantly since 2007, most notably with an easing of restrictions in 2010 after a fatal Israeli raid on a Gaza aid flotilla sparked international ire. As part of its 2012 cease-fire with Hamas, Israel agreed to allow 20 truckloads of gravel per day to Gaza’s private sector and increased that allowance to 70 truckloads of gravel and cement in September 2013, after Egypt’s closures.

But in November, Israel banned construction materials for Gaza’s private sector after militants were discovered to have built a mile-long tunnel some 60 feet under the Gaza-Israel border. The Israeli military estimated that 500 tons of cement and concrete had been used to make the tunnel, which Hamas’s armed wing took responsibility for building.

“Since Israel found this tunnel, we decided that construction materials will be able to enter Gaza only through the UN agencies,” says Guy Inbar, spokesman for Coordination of Government Activities in the Territories (COGAT), the Israeli branch responsible for implementing government policies vis-à-vis Gaza.

Sinai insecurity

According to details about a diplomatic briefing leaked to the press in Europe, outgoing head of COGAT Eitan Dongat warned of the “serious implications” of the decision on Gaza employment, since nearly 70,000 people – about 17 percent of the workforce – work in the construction industry.

Shaul Shay of the Interdisciplinary Center Herzliya and former deputy head of the Israel National Security Council says it’s important to differentiate between the security and humanitarian aspects of the issue. The tunnel closures are “almost unavoidable as a part of fighting the terrorism on both sides of the fence – in Israel and in Egypt,” he says.

The Egyptian military’s overthrow of the Muslim Brotherhood regime in July led to an uptick in terrorist attacks in the Sinai, including an Aug. 18 attack that killed 25 off-duty policemen. Several attacks have targeted Israeli citizens over the border.

Mr. Shay says one way of preventing arms smuggling while allowing more trade would be to open the Egyptian border crossing of Rafah – currently used only for pedestrian crossing – for the passage of “legal, legitimate goods.”

The crossing was open to trade until Israel’s withdrawal from the territory in 2005. Egypt has not reopened it for commercial goods for several reasons, according to Bashi: not wanting to interfere with Israel’s customs system, which still applies to Gaza; not wanting to take responsibility for Gaza; and political tensions between Egypt’s secular government and Gaza’s Islamist rulers.

Meanwhile, Gazans are working hard to repair the tunnels in hopes that they may reopen – or at least provide a paycheck for another few weeks.

"This tunnel was blown up three times and destroyed twice by Egyptian bulldozers," says Mohammed. “I have been working in tunnels for three years now. I used to make good money, but business is down since Morsi was ousted. I'm working now with my 20 colleagues on restoring the tunnel we work in. But we will be jobless when it is restored.”

Nearby, another tunneler who declined to give his real name is more optimistic. “This tunnel has been destroyed over three times in the past four years, and we restored it every time and we will rebuild it whenever it's damaged,” he said, as his feet sank into mud and water near the opening. “The tunnels may get back to work again, who knows!"